Safiya Malik

The Bombay High Court Single Bench of Justice Jitendra Jain, while restoring a damages order levied by the Employees' State Insurance Corporation against an employer for delayed contribution payments, invoked Benjamin Franklin to observe that laws in India are frequently violated due to a weak deterrent effect, and that a civilised society demands compliance with law out of principle rather than mere fear of punishment. The Court noted that penal provisions serve a dual purpose — to penalise the defaulter and to deter others — and found that the employer, whose wage records were shown to have been manipulated, could not claim relief on grounds that relevant mitigating factors were not considered, when those factors were never raised during the hearing process.

The appellants, the Deputy Regional Director and the Recovery Officer of the Employees’ State Insurance Corporation, passed an order on 10 January 2006 under Section 85-B of the Employees’ State Insurance Act, 1948, levying damages of ₹27,849 against the respondent employer for delayed payment of contributions. Prior to imposing damages, a show cause notice was issued and an opportunity of hearing was granted. The respondent sought reduction or waiver of damages, stating that contributions had been paid in instalments pursuant to a verbal request made to the Recovery Officer and that, had they known damages would be levied, they would have paid the entire amount by taking a loan.

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The original authority rejected these explanations and imposed damages. The respondent challenged the order before the Employees’ State Insurance Court, which, by order dated 22 February 2010, quashed the levy of damages holding that the order was passed mechanically without considering factors such as number of defaults, extent and frequency of delay. Aggrieved, the Corporation preferred an appeal before the High Court.

On the question of mitigating factors not being considered, the Court observed that the respondent had not raised in its submissions any of the factors such as number of defaults, extent of delay, or frequency of defaults for reducing or waiving damages, and stated that "if the respondent wanted to take the benefit of these factors, they should have pleaded so in their reply to show cause notice."

On the question of awareness of consequences, the Court noted that through Form C-18, the respondent had been informed that failure to pay contribution in time would attract Section 85-B and recorded that "it cannot be said that the respondent was not aware of the consequences of non-payment within time."

On the manipulation of records, the Court stated that "the wage records did not tally with the actual position" of employment, concluding that "the employer deliberately misled the Corporation by not reflecting correct employment position in the statutory records" and that this was a clear case of malafide intention. The Court further noted that "had it not been for field visit by the Appellants the manipulation between actual entries and those recorded in the records could never have been surfaced and old records were destroyed. The Appellants carried out an investigation and found that the wage register for the year 1997 was prepared in the year 2001 by printing on forms which borne a 7 digit phone number which was introduced only in the year 1999."

On the role and enforcement of penal provisions, the Court observed that "penal provisions have dual effect namely to penalise the offender/defaulter and also to act as deterrent to not only the offender/defaulter but also to others who would think twice before violating the law. The reasons for more violations of law in our country is low deterrent effect or fear of law which is against the principles of arranging affairs and staying in society within the boundaries of law. Therefore, penal provisions in a given case should be enforced with more fervour."

Invoking Benjamin Franklin, the Court stated that "laws too gentle are seldom obeyed; too severe, seldom executed. Thus, when a low penalty is prescribed it creates a perception that one can get away with anything and everything. Fear of law can be deterrent for immoral behaviour but true virtue involves obeying in law out of principle rather than just fear of punishment of law. A law is valuable not just because it is law, but because there is right in it."

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On the quantum of damages, the Court held that "as against arrears of Rs.96,705, the damages levied is only Rs.27,849 whereas the provision prescribes for maximum upto the arrears. Therefore, looking at the amount levied as damages as against arrears, it cannot be said that discretion has not been exercised judiciously by the appellants."

The Court held, “In view of above, the question of law is answered in favour of the appellants and against the respondent and the impugned order of the ESI Court dated 22 February 2010 to the extent it quashes the order of damages of Rs.27,849/- is reversed and the original order under Section 85-B of the ESI Act is restored.” It further directed, “The First Appeal is disposed of in above terms.”

Advocates Representing the Parties

For the Petitioners: Mr. Mayuresh Nagle
For the Respondents: Mr. Rutwij Bapat

Case Title: The Deputy Regional Director, Employees’ State Insurance Corporation & Anr. v. M/s. Aashu Engineering Works
Neutral Citation: 2026: BHC-AS:8492
Case Number: First Appeal No.756 of 2011
Bench: Justice Jitendra Jain